Recently, the IPO landscape in the Middle East and globally has been shaped by a growing focus on sustainability and ESG (Environmental, Social, and Governance) factors.

Countries like Saudi Arabia, the UAE, Qatar, and others have introduced ESG disclosure guidelines outlined in specific ESG guides. These include the ESG Disclosure Guidelines from the Saudi Exchange, the Guide to ESG Reporting from the Dubai Financial Market, as well as:

Guidance on ESG Reporting by Qatar Stock Exchange;

ESG Reporting Guide by Boursa Kuwait;

ESG Reporting Guide by Bahrain Bourse;

MSX ESG Guidelines.

Globally, markets like the New York Stock Exchange and NASDAQ emphasise similar ESG criteria, requiring detailed non-financial disclosures from issuers (New York Stock Exchange listing rules; NASDAQ listing rules). Additionally, the U.S. Securities and Exchange Commission (SEC) has adopted a rule on climate-related disclosure.

Research consistently highlights the benefits of integrating ESG commitments into IPO strategies. Watershed writes that companies like Samsara have exemplified the importance of integrating ESG strategies into IPO processes. By emphasising goals such as carbon neutrality and detailing specific emissions reduction plans, Samsara successfully aligned with frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), significantly enhancing investor confidence and appeal. This trend reflects the increasing materiality of ESG factors in driving investor decision-making and IPO outcomes.

So, what are the key drivers behind this growing role of ESG in IPOs?

Investor attraction: worldwide, investors increasingly prioritise companies with firm ESG commitments. A McKinsey study shows that 85% of investment directors consider ESG a critical decision-making factor.

Increased valuation: companies with high ESG ratings generally enjoy higher market capitalisation. According to Deloitte, a 10-point rise in ESG ratings correlates with a 1.2x increase in EV/EBITDA.

Enhanced reputation: companies that demonstrate a solid commitment to ESG principles not only build a positive reputation and strengthen their market image but also have significant potential to increase profitability. According to a PwC 2024 survey, some consumers are willing to pay an average of 9.7% more for sustainably produced or sourced goods despite the pressures of rising living costs. This might be because nearly nine in ten (85%) consumers report personally experiencing the disruptive impacts of climate change in their lives.

Risk mitigation: managing ESG risks — whether related to climate change or social issues—significantly reduces business risks. PwC reports that 79% of investors view ESG risk management as vital for long-term success.

Compliance with regulatory requirements: in the Middle East and globally, stock exchanges increasingly show interest in ESG disclosures, issuing detailed recommendations to ensure that companies meet investor expectations.

Key ESG Steps for Successful IPO Preparation

Here are key recommendations for incorporating ESG considerations into pre-IPO and IPO processes. These recommendations should supplement the thorough review of ESG-related guidelines and requirements mandated by the selected stock exchange.

Engage management: involve top executives in ESG strategies, aligning them with long-term business goals.

Integrate ESG into IPO planning: incorporate sustainability targets, risks, and corporate governance adjustments as part of the IPO process.

Identify material ESG topics: focus on key ESG issues that significantly impact the company’s performance and stakeholder interests.

Conduct ESG diagnostics: assess the current ESG maturity level and areas for improvement using global standards and best practices.

Prepare ESG reporting: disclose ESG data according to global frameworks like GRI, IFRS, and SASB to ensure investor compliance and transparency.

These steps are critical for companies in the Middle East and internationally as they navigate the evolving IPO landscape shaped by sustainability and investor demands.

ESG and IPO: how to leverage ESG factors to enter into public markets successfully